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As Peloton Interactive Inc. pushed back against media reports suggesting dramatic cuts to production and staffing, at least one analyst joined in countering the extremely negative sentiment surrounding the maker of connected fitness equipment.
After Peloton shares PTON, +6.97% dove 24% in Thursday’s session following a CNBC report saying that the company planned to halt production of its bikes and treadmills, Chief Executive John Foley put out a letter that called the report “false.” He acknowledged that Peloton was adjusting production levels and looking at ways to control costs but said that recent media reports, which also indicated drastic plans for layoffs, were “incomplete, out of context, and not reflective of Peloton’s strategy.”
See more: Peloton stock bounces back after CEO disputes reports of massive layoffs, production halts
Shares of Peloton were up 5.1% in morning trading Friday following Foley’s letter and Peloton’s release of preliminary results for the December quarter. The company’s revenue fell within its previously expected range, while losses on the basis of earnings before interest, taxes, depreciation, and amortization (Ebitda) were less steep than anticipated.
Peloton’s stock has endured quite the ride in recent years after coming public at $29 a share in September 2019. The stock closed as high as $167.42 in January 2021 as people flocked to its exercise bikes amid the pandemic, but it’s come crashing back down to earth since then amid a demand reset and now trades below its initial public offering price for the first time since April 2020.
That massive selloff seems extreme, in the view of Stifel analyst Scott Devitt, given that the COVID-19 crisis helped Peloton find new demand for its offerings.
“We believe the stock has over corrected relative to underlying business conditions and note that yesterday’s closing price is below pre-pandemic levels (February 2020) despite the company having a significantly larger subscriber base (+289% larger now than December 2019) and subscriber additions that are meaningfully outpacing prior levels off of a much larger base,” Devitt wrote.
He upgraded Peloton’s stock to buy from hold Friday, while cutting his price target to $40 from $56.
Other analysts remained mixed on Peloton’s status after the company’s latest comments and disclosures.
While the company’s preliminary results were largely positive according to MKM Partners analyst Rohit Kulkarni, he noted that Peloton faces “several existential questions ahead.” In particular, he asks about the risk-reward balance for Peloton shares and whether the pandemic helped grow the company’s total addressable market (TAM).
“It is hard to determine the near-term trends at Peloton, and thus we have low conviction that fundamentals have bottomed out as yet,” he wrote. Kulkarni thinks that the COVID-19 crisis “semi-permanently expanded the TAM for connected fitness products,” but he expects it will take at least six months for consumer behavior to stabilize toward a “new normal.”
He rates the stock at neutral with a $30 fair-value target.
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Evercore ISI analyst Shweta Khajuria also suggested that Peloton needed more time to reset, a dynamic that could keep its shares “range bound.”
“We continue to think PTON will likely face diminishing consumer demand (due to rising competition, reopening economies and mix-shift in consumer spend towards experiences), in addition to limited visibility with reduced backlogs, and the need to right size its operations by optimizing its fixed and variable cost structure,” she wrote, while maintaining an in-line rating and reducing her price target to $40 from $72.
The stock has lost 84% over the past 12 months, while the Direxion Work From Home exchange-traded fund WFH, +3.11% has lost 4.6% and the SP 500 index SPX, +2.43% has rallied over 15.7%.